Standing Committee A

[Mr. Peter Atkinson in the Chair]

State Pension Credit Bill [Lords]

Clause 5 - Income and capital of claimant, spouse, etc

James Clappison: I beg to move amendment No. 26, in page 4, line 4, leave out 'except in prescribed circumstances'.
 We now come to the question of aggregating the income and capital of couples for the purpose of determining entitlement to the pension credit. Generally speaking, joint assessment of couples and the way in which that compares with the principle of separate assessment under taxation has been one of the features of tax credits commented on in many quarters. That principle of joint assessment applies equally to other forms of tax credit: the working tax credit, and now the child tax credit. As many people have said, that cuts across the principle of independent taxation. However, it is in the Bill and we must consider it. 
 Under clause 5, any income or capital of the claimant's partner, whether they are married or not, is treated as the income or capital of the claimant for the purposes of the pension credit income assessment. The only exceptions to that rule are circumstances that are to be prescribed in regulations. The amendment is probing, and will explore what such circumstances might be, if the Minister can throw any light on that. We note that the explanatory notes cite two examples of circumstances where joint assessment would not take place that may be prescribed in regulations. The examples are: 
''where a partner receives income from a trust, or capital is held in trust, for a third party who is not part of the income assessment unit; or similarly, where the partner is the appointee or holds power of attorney for the financial affairs of a third party who, again, is not part of the assessment unit.''
 In such circumstances, it seems intuitively right that income or capital should not fall into the assessment for pension credit purposes. Indeed, it seems inconceivable that it should do so. The person concerned—the claimant or the partner—is not receiving any benefit from that, and is acting under a duty when dealing with it. The examples seem to imply that where the person concerned is under a duty to deal with income or capital for the benefit of a third party, and receives no benefit himself, that will not be taken into account. However, the underlying principles are not exactly spelt out, and it would be useful to hear something from the Minister on that.

Tim Boswell: It seems to me, and my hon. Friend will know this from his legal experience, that where examples are cited in legislation—I appreciate that the explanatory notes do not have the force of legislation—there is a danger
 that the cases cited may be seen as an exclusive list. I hope that it is the intention of Ministers to make it an inclusive list for other circumstances that they may specify this morning, or which may arise in light of subsequent experience.

James Clappison: What my hon. Friend says is helpful and lends strength to my contention that there is a need for the principles to be spelt out. It is all very well having examples, but we need to find out what other circumstances might be covered. It is more helpful to have the principles spelt out than to be given examples only. We are leaving those to be prescribed by regulations but, examining the final provisions of the Bill concerning regulation-making powers, I notice that the regulations made under the clause do not seem to be subject to the affirmative procedure, so we shall be left with the negative procedure for them. Against that background, it would help if the Minister could tell us something about that this morning so that we may debate it as fully as possible. We need to explore it.

Ian McCartney: I apologise to the Committee because the Under-Secretary, my hon. Friend the Member for Liverpool, Garston (Maria Eagle), is participating in a Westminster Hall debate this morning. I think that the hon. Member for Daventry (Mr. Boswell) will also be there later, so this Committee will be without intellectual input this morning. We shall have to muddle on until my hon. Friend and the hon. Gentleman return later. I do not know whether the hon. Member for Northavon (Mr. Webb) is also going to that debate.
 Clause 5 replicates the provision in section 136 of the Social Security Contributions and Benefits Act 1992. It is desirable for consistency reasons for the provision to be carried through to clause 5, but I would not expect hon. Members simply to accept that in Committee, sit down and say, ''There you are—it's for consistency''. The amendment, if it were accepted, would remove a flexibility to make beneficial changes without the time-consuming process of amending primary legislation. I do not think that that is reasonable. 
 I shall say a few words about the debate that occurred in another place on the treatment of couples, to put the amendment in context, as the hon. Member for Hertsmere (Mr. Clappison) requested. Much interest was shown in the other place in the composition of family units and how the pension credit should treat single people, married and unmarried couples and those in polygamous marriages. Couples are treated differently for contributory benefits such as the retirement pension where entitlement is based on lawful marriage. That stems from the national insurance scheme in which, usually, the husband was the contributor and benefits included provision for dependents. 
 The position is different for income-related benefits, but the issue is not whether a couple are living in or out of wedlock but whether a man and woman form a common household. Where a couple form a common household, it is right that the help that they get takes account of shared costs, such as heating costs. It is a 
 long-standing principle that unmarried couples should not be treated more or less favourably than married couples. A couple living together as husband and wife should be treated in the same way as a married couple. There are some 270,000 pensioner couples receiving the minimum income guarantee and it is estimated that no more than 10,000 of them are unmarried. That comparatively small number is not a reason for changing the rules of the pension credit. In an increasingly tolerant society, to do so now would seem a backward step. 
 When a decision-making officer is satisfied that a couple are not living together as husband and wife, separate benefit claims can be made. Rates for couples are lower than twice the single rate. Some 30 per cent. of the households that will benefit from the pension credit will be couples, and 70 per cent. will be single people, of whom more than three quarters will be single women. Clause 5 is important in the calculation of pension credit and without it we would be unable to calculate fairly either the guarantee credit or the savings credit for couples. Single pensioners and couples are entitled to pension credit. It is only right that couples' entitlement should be based on the income and capital of both claimant and partner. 
 The concept of household membership is an important and long-standing one in social security generally and is especially important in income-related benefits. In seeking to be fair to all, we need to ensure equity of treatment for pensioners, whether single or members of a couple. That is why clause 5 ensures that any income or capital of the partner is aggregated with that of the claimant. That allows us to consider a couple's joint income and capital when calculating the guarantee credit and the savings credit. That arrangement has been introduced from the income support system with the advice of parliamentary counsel. 
 Amendment No. 26 would remove the regulatory power to provide exceptions to the principle of aggregation. We will accept the proposal simply to allow us to debate the issue. The hon. Members for Daventry and for Hertsmere alluded to the examples in the explanatory notes. They are explanatory, and there is no need for further clarification. 
 The hon. Member for Daventry was right, and I shall use a phrase that means exactly the same as what he said to his colleague, the hon. Member for Hertsmere—it is a belt-and-braces regulatory power. The hon. Member for Daventry, in his discourse with his colleague, asked whether there was any specific reason for it and whether it could be used in future years, if issues arose. There are no plans to put forward regulations using the power. If we were to use the power at some time in the future, the effect of not aggregating a couple's income or capital is that we would totally disregard the income or capital of the claimant's partner. That can only be an advantage to them.

James Clappison: Will the Minister give way?

Ian McCartney: May I finish this point first, so as not to disturb my train of thought so early in the morning?
 To assist in the explanation, I shall provide a potential example. The word ''potential'' is underlined three times. The power could be used if we wanted to encourage a pensioner's younger partner—someone of working age who may be looking for employment—back into the labour market. It may be appropriate in such a case to disaggregate the couple's income so that we could ignore that for earnings purposes.

James Clappison: I am grateful to the Minister for giving way. There is nothing wrong at all with his train of thought this morning—it is on time. However, may I take him back to what he said a moment ago about the Government not having any intention to use the regulation-making power? What would happen in the circumstances that are foreseen in the explanatory notes, which I spelled out in my opening remarks, in which a partner receives income from a trust but does not receive any benefit from it?

Ian McCartney: I really have nothing to add to what I said, not because I have not read the notes or do not know anything else about the clause, but because the trust does not provide any financial gain to the couple, so it would be totally wrong to include it in any process of consideration. For example, the trust could be maintained for children or grandchildren of the couple or for a relative who suffers physical or mental disabilities and requires someone to be responsible for the trust on their behalf, but the couple would receive no income whatever or any other form of support from the trust. We gave that example to indicate that there are exceptional circumstances, and it would be wrong to have regulations that are set in concrete.
 Clearly, if someone is acting on behalf of someone else in such a capacity, they are probably also acting in a caring capacity. Therefore, it would be wrong to penalise them for carrying out a good citizen's duty in acting for a close relative, a close friend or someone else—perhaps a tenant—who requires additional support, which is linked with a trust.

James Clappison: I am grateful to the Minister for his helpful reply. I was not disagreeing in any way, shape or form with the proposition that such income should be excluded from the aggregation. It is right that it should be excluded. My point was on the use of the regulation-making power. I presumed from the fact that an example was cited in the explanatory notes of a case where the regulation-making power might be used to exempt income from being taken into account and aggregated, that there was a risk that such income—income that comes to one of the couple from a trust on behalf of another—might be taken into account in the aggregation. I was simply asking whether the regulation-making power would be used to deal with that case. I shall certainly consider carefully what the Minister said in his helpful reply.
 I was not aware of the connection with section 136 of the Social Security Contributions and Benefits Act 1992. The information was not at my fingertips, but I 
 had a feeling that there might be similar provisions elsewhere. I shall certainly look at how that operates.

Ian McCartney: I said in my opening remarks that this is a safety-first measure. We have no plans to bring forward regulations at this stage, because the measure allows us flexibility. Flexibility always ends up on the side of the pensioner in such circumstances. It would seem at the outset of this new and almost unique way of providing additional income that we should allow ourselves to transfer from the 1992 Act to this one a flexibility that may be of use to a particular group of claimants, which has not been yet identified.

James Clappison: As I said, the Minister's remarks have been helpful. They have put the power in context, and have given an indication of how it might be used in future to give greater flexibility. I shall consider his comments carefully. The debate has been useful, and has drawn out from the Minister another example, which sounded worthy, of where the power to disaggregate might be used to encourage someone to work. The Minister has indicated the background to Government thinking on the power, so I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 5 ordered to stand part of the Bill.

Clause 6 - Duty to specify assessed income period

Question proposed, That the clause stand part of the Bill.

James Clappison: Clause 6 brings us to the question of the assessed income period, and is the first of several clauses to do so. The system set out in clauses 6 to 10 is put forward on the basis that the income of claimants aged 65 or over is to be treated as remaining the same for a five-year period, which is the assessed income period. Increases in income do not affect entitlement, and therefore they do not have to be reported, although a claimant can apply for reassessment if his income goes down. We shall shortly come to the mechanism for doing that. Other prescribed circumstances need to be notified during the assessed income period, and they are similar to those that apply to the basic state pension.
 I cannot let the clause pass without making one observation. The original consultation document stated that the Government planned 
''to award the Pension Credit for a longer, fixed period, drawing on experience from tax credits.''
 That consultation was issued when the working families tax credit was granted for a six-month period based on a snapshot of a claimant's income, after which the credit was fixed. Since then, the working families tax credit has been replaced—or has evolved, as the Government would have it—and its successor establishes awards that are more sensitive to changes in circumstances, and allows for wider responsibilities for claimants who report such changes. In particular, clause 6 of the Tax Credits Bill establishes that, in relation to the working tax credit, at the end of the tax year the claimant must consider 
 their income and whether there have been variations in it. If there have been variations of certain types, they must report that and it will have an effect on entitlement. 
 The working families tax credit has evolved into the working tax credit, which is more sensitive to changes in circumstances than its predecessor, which gave credit for a fixed six-month period. One wonders what experience of other tax credits has been drawn on to design the pension credit. A lesson that could usefully be learnt from the working families tax credit is the way in which it has constantly changed. It would be a good idea if the Government could resist the temptation to make change after change to the design of tax credits. The more change there is, the more complexity enters the system. Many would say that the system is already complex enough.

Steve Webb: Clause 6 sets out an assessed income period, and the presumption is that that period will be five years for anyone of 65 or over. I hope that the Minister will clarify what it will be for those under 65, and whether it will be akin to the weekly assessment that happens under income support, whether it will be one year, or what. I am hazy on that.
 I have one point that I hope that the Minister will address. The nub of the Government's contention that the assessment is a more humane form of means-testing rests primarily on the fact that people will only be assessed every five years. There will be an assessed income period, which, once people are 65, will be five years. 
 There will be circumstances, which claimants will be obliged to report, in which that period will not be five years. It is not clear whether the Government have researched or made estimates of—I hope that the Minister will inform the Committee about this—the question how, if the assessed income period is set at five years, someone will typically run five years without contacting the Department to reassess their pension credit? If, for example, hitting a particular age, losing a partner or another major change in circumstance prompts a reassessment, two years, rather than five, might become the norm, or half of all claimants might have to put in fresh claims three times in five years. In that case, all the benefits claimed for only having to be assessed once every five years will be greatly diminished. 
 Although the attraction of means-testing somebody every five years rather than every week is self-evident, five years might not be the outcome if many people have changes in their circumstances that require them to report more regularly, or have changes in their circumstances that they would want to report because if they did not do so they would lose out. I should be grateful if the Minister were to tell us the Department's assessment of how many people will, even if the period in the clause is set to five years, be reassessed more frequently. Will it concern a minority, or will the typical pension credit recipient find themselves in contact with the Department far more frequently than every five years? That is critical to our assessment of how far that is humane means-testing, or how far it 
 will end up being regular contact with the Department, and I should be grateful for clarification.

Kevin Brennan: Clause 6 is important because it lays out a Minister's ability to be able to set the assessment period at five years. That is highly significant because it is about time that we started to move away from talking about a means test and describing the state pension credit by that phrase.
 I have talked to some in the voluntary sector who work with older people, all of whom welcomed the additional money that will be going into pensioners' pockets when the Bill becomes law. They all agree that what is crucial to the take-up of state pension credit is the need to get it into pensioners' heads that it is something to which they are entitled, that it will not be intrusive or demeaning, and that it will not affect their wish to live a dignified retirement, but rather quite the opposite because it will hugely enhance the quality of life of many pensioners across the country. 
 The points raised by Opposition Members in trying to draw a comparison between a state pension credit, in which there will be an assessment of pensioners' means every five years, and national assistance benefits, in which people face intrusive interference in their personal lives and minute inquiries into their personal circumstances, is ludicrous and damaging. The Bill will pass into law, and we should start using more realistic language when we talk about it and recognise that the burden of the so-called means test in the Bill bears no comparison with the kind of burden that lives in the memories of people from my part of the world as a result of means-testing in the 1930s.

Steve Webb: To a point, I am with the hon. Gentleman, and I accept that we are not talking about the 1930s. However, two important aspects of what is proposed here are substantially worse than anything any of us would want in our old age. First, there is the duty to report certain changes in circumstances to the authorities for fear of creating overpayments, debt and all the rest of it. The death of a spouse would be an obvious example, but there are others. There will be a set of people who have to tell the authorities about what is going on in their lives, and that will affect their income. Secondly, whereas we all want to know that we have a certain income in our old age, which we know will go up in a certain way, people subject to the pension credit will always substantially be at the whim of the Chancellor, whoever they are and whatever party they come from, and the way in which they set tables, thresholds and rates. That is quantitatively different from, and inferior to, what we would want in our old ages.

Kevin Brennan: As we know from the last Government, pensioners can be subject to whims and ideology. The last Conservative Government made perhaps the most significant breach from the pattern of pension provision since the war when they broke the earnings link with the state pension many years ago.
 Providing that those reports are the minimum required, simple and well understood, I do not see 
 them as an intrusive and unnecessary burden. It is not unreasonable to expect people to be able to make them. When one gets down to the minutiae of people's business and they are expected to report on a weekly basis, one can talk about a means test in the sense that people are trying to portray.

Annabelle Ewing: I have listened to the debate with interest. The hon. Member for Northavon made some good points about the potential frequency of testing, and I await the Minister's comments with interest. Aside from the potential frequency of the tests and leaving aside periodicity, what makes that kind of means-testing more humane?

Kevin Brennan: That is self-evident. When people apply for the state pension credit, they will not need to reveal the minute details of their means on a weekly or daily basis. The proof of the pudding is in the eating. On the ground, people will see how that is radically different from the sorts of means-testing they may have faced before under income support.

David Cairns: As well as the five-year frequency, another key factor is the amount of money that is being given, which is far more generous than anything given under the old system. Does my hon. Friend agree that the weekly assessments of the old National Assistance Board were designed to ensure that people were not getting too much money? Their income was assessed, and any additional assistance that they got still kept them in poverty. This assessment is about ensuring that people get the maximum amount of money that they need in order to lift them out of poverty.

Peter Atkinson: Order. Before the hon. Member for Cardiff, West (Kevin Brennan) resumes, I remind the Committee that the debate is interesting, but it is going rather wide of clause 6, which is entitled:
''Duty to specify assessed income period''.

Kevin Brennan: I naturally take your advice, Mr. Atkinson. I am grateful to my hon. Friend for his in-flight refuelling, which enables me to conclude my remarks by saying that we obviously need clarification from the Minister about the circumstances in which people will need to make reports, and I am sure that he will provide us with that. The specification of a period of five years for the assessment of income will make the pension credit a radically different type of benefit from those that we have seen before.

Ian McCartney: I shall try to be helpful to the hon. Member for Hertsmere. He raised the issue of whether the establishment of clause 6 is consistent with the assertions in the consultation paper. It is to pensioners' advantage that, in putting down the proposal, we maximise the period of assessment in their favour by taking into account the way in which their incomes overwhelmingly grow after retirement. Five years is surely a better period for them because their incomes are more stable—we shall come to this later—than those of people of working age. Tax credits do not allow for reductions in income, but that is not the case in pensions. Pensioners have access only to a limited income, in any event. If, for whatever legitimate reasons, their income falls, it would be important to reassess in favour of them. In that five-year period, any
 changes that impact negatively on pensioners' overall income can be assessed and additional income can be achieved, which would not have been available to them if we set this in a concrete way.

James Clappison: I was drawing a contrast between the Bill and what has happened with the working families tax credit. I fully appreciate that if pensioners' income goes down, they can apply for reassessment. The problem in the working families tax credit is that the change that has been made since the consultation means that recipients are under a duty to report change of circumstances upwards at the end of the year period, which they were not when the consultation came out when the Government said that they were learning lessons from the working tax credit. I was merely drawing a contrast between what was happening there, and what will happen with this credit.

Ian McCartney: If that is all that the hon. Gentleman has to say, fair enough. We are not here to debate the working families tax credit, but we have learned from that. In the consultation period, we have learned a lot from pensioners. In my initial intervention, I said that the income patterns for people of working age are radically different in context from those of pensioners. During the process, we did consider the working families tax credit, but we also listened to what was being said by older people's organisations and older people themselves. We considered the empirical evidence—what happens to people's income, and the stabilising effect of that, as they reach 65 and beyond.
 We have been true to the consultation paper. Indeed, we have actually improved on it by not taking what might be called the prescriptive route of the working families tax credit, which I am not criticising. I would be criticising the Chancellor—God almighty. If the hon. Gentleman was saying that the way in which that has been prescribed is different, the answer to that is yes. The reason for that is to take into account the different circumstances of people of working age and their propensity to earn income in a way that is not available to older people. The propensity for older people to lose income is greater than those of working age. I think that we have got the balance right. 
 The hon. Member for Northavon raised a legitimate question concerning the proportion of assessed income periods that will be achieved during the five-year period. We expect the vast majority of assessed income periods not to change during that period. The main ongoing changes concern those with earnings: only 2.5 per cent. of those entitled to pension credit would be in that group. Other changes are life events, such as the unfortunate death of a partner, of which people would notify us in any event for the obvious reason that it initiates other benefits. Furthermore, when income goes down we do not want pensioners to lose out. 
 The whole system is designed as an intervention measure, more for pensioners' intervention than the state. That is the difference from what has gone on in 
 the past. There has been state intervention in the past to prevent people gaining access to income, because legislation is usually designed as a gateway—''Do not come through here''. Alternatively, assessments have been carried out in such a way to make it difficult for people to make claims, or the tapering arrangements are such that the number of people entitled to claim is reduced. As far as possible, all of the panoply of what people feared in the old-fashioned system has gone. The whole principle and concept is now different. We are standing the old welfare state on its head, and the principle of the basic state pension. We have brought together for the first time two forms of income that will be assessed when people claim their pensions. Hopefully, those who are currently in the system will automatically, with no fear or concern, transfer to pension credit. In future, when people apply for their basic state pension, they will also apply for pension credit, which will be worked out for them. How can it be said that that is some from of draconian means test? During the four months or so in which someone applies for their basic state pension, what do they do? They apply to have their national insurance contributions assessed. It is that assessment that determines someone's level, whether they get the basic state pension or not, as has been the case ever since the day when we created the basic state pensions. 
 The state has decided to get rid of the income trap in which people have been for so long and, at the same time, is assessing their pension credit for them. What is wrong with that? I have been branded a red-hot socialist on occasion but, for the life of me, even as a red-hot socialist, I cannot see that that could ever, in any way, be painted as a draconian measure, forcing half of Britain's pensioners into a means test. That is ludicrous. [Interruption.] I shall give way to the hon. Member for Northavon and have a wee rest.

Steve Webb: The Minister identified three cases in which there would be a reassessment, the third being where someone's income fell, including imputed income from capital. Let us take the hypothetical scenario in which pensioners have Railtrack shares and those shares have fallen in value. In principle, their imputed income from that capital would fall and, if they were above the threshold, they would be entitled to more pension credit. So, every pensioner with Railtrack shares who is getting pension or savings credit, if they are not to miss out, should contact the Department.
 That, indeed, is the case for anyone with any other shares. If one thinks of what has happened to the stock market during the past 12 months, and in the previous year, it is probable that everyone with shares has a case to re-contact the Department. What assessment has the Department made of the number of people in that third category—those who might face falls in their income, including that from capital, and who would, therefore, have the ongoing contact with the Department that the five-year assessment is supposed to prevent?

Ian McCartney: That seems a very clever case—Railtrack. I shall try to count on one hand the number of pensioners who suffer from Railtrack in terms of
 shares. Certainly, plenty suffer from it in terms of poor performance.
 The hon. Gentleman's point is not a big deal. Even under the current system, every day pensioners legitimately use up their capital for various reasons and so qualify for the minimum income guarantee. The whole point is that a pensioner has choice. A pensioner whose capital decreases, for whatever legitimate reason, has access, through this system, to additional income from the state. 
 How is that a burden? I take it that the hon. Gentleman is not suggesting that, when a pensioner's income falls significantly to the point at which it affects their level of pension credit, whether because of Railtrack shares or another reason, we should simply leave them to grin and bear it for five years. There is no way that I would agree to support the Liberal Democrats on such a policy. 
 The hon. Gentleman had a good try, but it was an attempt to construct a scenario that has been claimed continuously since the original presentation of the Bill—that this Government have turned their back on Britain's pensioners and are forcing them through old-fashioned means-testing. That was not true at the beginning, it was not true during the consultation process, it is not true now and it will not ever be true. That is not what we are attempting to do. 
 I ask the hon. Gentleman to think about the matter a little more, to think about what we are trying to do to change the whole ethos of the basic state pension and income related to it. Even if someone is totally opposed to what we are doing, they cannot argue against the significant change that we have made to people at the point of retirement. For the first time, the state will recognise not only their contributions to the basic state pension but contributions of other kinds and other forms of income, and will give out income in relation to that.

Julian Brazier: It does not seem to me that the Minister has answered the questions posed by my hon. Friend the Member for Hertsmere and by the hon. Member for Northavon. I put to him another hypothetical case. Let us look at income from earnings, which the Secretary of State has assured us will be treated in exactly the same way as other forms of income. If a pensioner is doing a part-time job in which the value of the work fluctuates enormously from week to week, as quite a lot of younger pensioners do, how will their work be treated?

Ian McCartney: The hon. Gentleman said that I had not answered the questions, but perhaps he did not like the answers. Eighty-five per cent. of pensioners have less than £6,000 capital. They will not be affected by the rules, and quite rightly so. [Interruption.] The hon. Member for Northavon says 15 per cent., as if I am trying to wash this away. Is it his contention that half of Britain's pensioners will be forced through a draconian system to get income? That is patently not the case.
 The rules are designed to assist the 15 per cent. if they legitimately use up their capital at any point. If a 
 change in circumstances affects their entitlement, they will automatically have access to the system and be reconsidered for receipt of income. What is wrong with a system that acts so proactively for older people? At present, an older person in that situation has to grin and bear it. Under the Bill, we will reassess their case in respect of the change in their circumstances—circumstances are bound to change—when they approach us. As a package, clauses 6, 7, 8, 9 and 10 are a reasonable approach and allow for fair assessment of claimants' circumstances. 
 If the five-year award were totally fixed and continued to be paid regardless of any change, there would be significant costs. The Bill reduces reportable changes to the absolute minimum and maintains the integrity of the scheme. If we had not designed it in such a way, the taxpayer would not be protected from attempts to undermine the scheme but, more importantly—the balance must be right—pensioners who legitimately find themselves in the situation that I outlined earlier would not have an automatic right to be reassessed and, I hope, secure additional income from the state. I will come back to that later—it is important to deal with the general principles of the clause. I hope that I have dealt with the question of whether the Bill introduces a nasty, means-tested system. 
 Clause 6 establishes the principle of an assessed income period of up to five years during which most changes need not normally be reported. That is one of the main reasons for introducing pension credit. The assessed income period is the legal mechanism through which we will abolish the weekly means test for pensioners from age 65. When they reach that age, the vast majority of pensioners find that their income is settled and that their circumstances are stable. There is no need to continue to impose on them a requirement to report every little change from week to week. That is in response to the hon. Member for Canterbury (Mr. Brazier). Fluctuations in incomes will have to be reported, but in a way that is in keeping with the principle of the Bill. The reporting system is designed to assist the pensioner to benefit from the assessment, in almost all circumstances. 
 Clause 6 requires the Secretary of State to set an income period when he is making a decision on the pensioner's pension credit entitlement. The decision may be made when the pensioner first claims on retirement or it could be made at a later stage. The assessed income period will usually last for five years, during which the retirement provision—the types of income are defined in clause 7—of pensioners aged 65 or over will be deemed to stay the same. 
 In general, pensioners, particularly those aged 65 or more, have settled and regular income that is not subject to frequent changes. There is little point in continuing the existing regular re-examinations of the financial circumstances of people in that situation. In theory, under the current regime, pensioners are supposed to decide each week whether there has been a reportable change. That is intrusive and demeaning, and we have discussed why it is completely wrong. We are righting a big wrong by introducing an effective and transparent system that 
 provides flexibility for the pensioner or the pensioner couple. That will reduce considerably the number of enquiries that are made and the number of changes that must be reported by pensioners.

Julian Brazier: A growing number of pensioners, particularly younger people in their late 60s, choose to go out to earn money in part-time jobs—a growing number that Government spokesmen have said that they expect to continue to grow. Given that incomes usually fluctuate enormously—sometimes they stop completely, then start again—how will the Minister square such cases with what he has said?

Ian McCartney: I thought that I had already acknowledged that there would be occasions on which there were fluctuations, and that we would be using average figures. I have already explained all of that. The problem of the hon. Member for Canterbury is that he does not like what we are doing. However, we have not heard what the Conservative Front-Bench spokesmen would do: would they keep the credit or get rid of it? The mother and father of all parties when it comes to using means-testing to prevent people from accessing income and other benefits is the Conservative party. It is a past master.
 We have been consulting people and restructuring the basic state pension credit to try to unpick the labyrinth of rules and regulations left by the Conservative party. I am not just referring to way back in the '40s, '50s and '60s, but to when you were last in power. You spent most of your time not providing access—

Peter Atkinson: Order. When the Minister says ''you'' and ''your'', he is referring to me.

Ian McCartney: I am sorry. I realise that for the purposes of the debate, you are not a member of the Conservative party, Mr. Atkinson. I do apologise, and would not want to embarrass you or impugn your character.
 Most of the 18 years that the Conservative party was in power was spent creating new forms of regulation to prevent people gaining access to credit, including removing income support from those who already received it. I spoke out against that from the Back Benches, and occasionally from the Front Bench. The Conservative party did not modernise the system, but ensured that what people had was removed from them. It left a huge pool of general poverty—children's poverty, in-work poverty and, of course, pensioner poverty. Clause 6 reverses that so that the state has a different relationship with older people, and it creates a different way in which to assess them and their incomes. 
 Clause 6 is an important aspect of the Bill, and we have had a good discussion on it. There is a divide between the Government and Opposition Members, but nothing more that I could say would bring the Opposition on board. I will leave it at that, and simply add that it is an excellent and necessary building block of the Bill. I ask hon. Members to accept it.

Steve Webb: In theory, means-testing every five years under an assessed income period sounds great. The
 Government's line, which is always airbrushed, is that pensioners will not have to touch the authorities for five years at a time, which is wonderful. However, on examination, we find that that is not the case.
 Things will not be like that, and the first group for whom things will not be like that comprises of women aged 60 to 64. Their assessed income period will be every week, as it is at present. That may not be called an assessed income period because the clause refers only to people aged 65 and over, but of the 5 million people who will receive pension credit, probably more than 500,000 women aged 60 to 65 will have a weekly assessment. They form one group for whom the assertion is not true. 
 The second group comprises anyone who must report a change in circumstances. If people's incomes drop, it is good to give them the opportunity to report that and to give them more money. However, the Minister has not addressed two problems. The first is take-up. If people are given the impression that the amount is for five years, and that they will have no contact with the authorities for that period, when reassessment takes place, I reckon that hundreds of thousands of people will be uncovered who are not getting what they should because they have failed to report falls in their income. The system is so complicated that the chances are that people will not appreciate what has happened. The Government are using a five-year assessment period, but leaving the onus on the individual to report falls. Why not 10 or 20 years? There is a trade-off. The Minister has given no justification for selecting a five-year period. The longer the period, the greater the chance that there will be people whose circumstances have changed but they have not reported it, and those people will be missing out. However, the shorter it is, the more intrusive the assessment. That is the trade-off that he has not addressed. 
 The critical point is that the claim, ''This is five years, and we'll leave you alone between times,'' is not true. People will have a lot more contact with the authorities than is being suggested, so it is simply not true that the provision makes a completely clean break with what has gone before. I am not convinced that the Minister has made a strong case to persuade us that the Government have got the balance of that trade-off right.

James Clappison: The Minister said that he was trying to bring the Opposition on board. I am trying to be as consensual as possible, but I must say to him that for much of the time we were not trying to jump overboard in the first place, because we agreed with a great deal—but not all—of what he said. I agree with the Government that it is more appropriate to have a longer assessed income period for pensioners than for people of working age, and that the assessment period should not be as sensitive to changes in circumstances as when people are working. The point that I was gently making was that that was not the case when the Government launched their consultation paper. They said that they wanted to learn lessons from the existing system of the working families tax credit, and then promptly changed that system.
 The Minister asked me about the Opposition's policy, and whether we would do away with the provisions. In the next three or four years, the biggest risk to the provisions will come from the Government themselves. The credit would be unique if it survived that long; none of the other credits has. There have been relaunches and fundamental changes pretty shortly after they were introduced. My plea to the Minister was that there should be some stability in the system. Credits should not be abolished or changed before people have the opportunity to get used to them. 
 I take the Minister's point that the means test is less intrusive than past tests, but I draw his attention to the remarks of the hon. Member for Northavon about the fact that there is still a need for changes in circumstances to be reported. I shall not take issue with the Minister about pensioners reporting falls in income and the effect that such falls would have. However, I remind him and his colleagues of the evidence presented to the Select Committee from a variety of sources on pensioners and means testing. They have a resistance to means tests for a variety of attitudinal reasons, and simply do not want to undergo them. 
 It may be less intrusive for pensioners to undergo just one means test every five years, but they do not like them at all. There is a wealth of evidence for that, including some from the Institute for Public Policy Research, which I invite the hon. Member for Cardiff, West to consider. Proof of that fact will be found in take-up rates, on which we shall have to keep a close eye. I also gently remind the Minister of the pledge made by his right hon. Friend the Chancellor of the Exchequer in 1993 to abolish means testing for pensioners altogether within a generation. He did not pledge to introduce a different form of means test.

Kevin Brennan: I was intrigued by the hon. Gentleman's remarks. Do I take it that he, as a Conservative Front-Bencher, is saying that he is opposed to means-testing?

James Clappison: I do not want to go too widely into that; I do not want to earn your strictures, Mr. Atkinson. However, in the 18 years of Conservative Government there was a reduction in means-testing as more pensioners had pensions and assets of their own. We have heard the Minister's comments on that. Pensioners floated off means-testing.
 In 1993, the man who is now Chancellor of the Exchequer pledged that a Labour Government would abolish means-testing, saying that that generation of pensioners would be freed from it altogether. However, there has been an increase in the proportion of pensioners undergoing means-testing—and the structure of the Bill and the assessment period are likely to ensure that there is a huge increase in means-testing in the future. PricewaterhouseCoopers' analysis was that given the way that things are structured at the moment, 70 per cent. of pensioners will be undergoing means tests by 2050. Those records are there for the hon. Gentleman to see. May I gently remind him of his party's obligations? I appreciate that 
 he is trying to make the point that this is a new and improved form of means-testing that is entirely different from that done in the past, but that is not quite what the Chancellor said.

Ian McCartney: Once again I rise to speak—rather wearily. I thought that I would give the hon. Gentleman another chance to come on board—

James Clappison: I am on board.

Ian McCartney: The hon. Gentleman is on board in the sense that he recognises the common sense of the Government's position, but he could not quite overcome his prejudices against the proposals and find a reason not to jump overboard. I hope that when he does, he will have a lifebelt.
 I perceive a wee bit of movement among the Liberal Democrats. We were told this morning that more than half Britain's pensioners would face a nasty means test. The hon. Member for Northavon then recalculated and reduced the figure to a proportion of men aged 60 to 64—he has a point—and turned the argument round. He now accuses us of not being intrusive enough. He says that if the period remains five years, at the end of that period—[Interruption.] I apologise for paraphrasing the hon. Gentleman; I shall give way to him in a moment. He says that at the end of that period, huge amounts of benefit would be unclaimed because we had not been in contact. I thought that Liberal Democrat policy was that we were being far too intrusive. He cannot have it both ways. 
 The Pension Service will send all pension credit recipients an annual statement that shows their entitlement and how it is calculated. Each year, therefore, they will know how much they receive and whether that amount is correct. Regularly and unintrusively, we shall maintain contact with them to tell them what they are receiving and ask them whether the amount is correct and whether there has been a change in their circumstances. If the amount is not right because of error or a change of circumstances, that is where the beauty of the scheme kicks in. It turns the current system on its head and becomes an advocate on older people's behalf. The system will operate effectively on behalf of older people. 
 The hon. Member for Northavon must sort out in his mind what he wants us to do—to have an ongoing, transparent and grown-up relationship with older people through the Pension Service, or to go back to the past, when we had no relationship other than the draconian one of which he paints a picture. We are moving on, modernising and considering the matter in terms of the two components of income assessment that apply at the start of someone's basic state pension. 
 The Liberal Democrats do a disservice to pension credit—and, more importantly, to older people. They tell older people that they will be means-tested, screwed into the ground, kicked from pillar to post and have the thought police, the financial police and the Metropolitan police all onto them. That is what the hon. Member for Northavon throws into the argument. Perhaps I exaggerate—I am paraphrasing—but that is the point that the Liberal Democrats have 
 reached. They are desperate to ensure that pensioners do not regard the proposal as a beneficial and major change on their behalf. 
 If pensioners do regard it in that way, as they increasingly do and will, the hon. Gentleman's arguments will be threadbare in the extreme, and all that will be left is a simple question that pensioners will ask them: ''Would you take it away?'' That is rather like what happened with the winter fuel payment, as hon. Members may remember. Pensioners got the payment, and when the Liberal Democrats were asked whether they would take it away, they changed their policies overnight. They will do the same with pension credit. 
Mr. Webb rose—
Annabelle Ewing rose—

Ian McCartney: I give way first to the hon. Member for Northavon.

Steve Webb: The alternative to 5.5 million people receiving pension credit is a decent state pension. Let us suppose that we asked Britain's pensioners, ''What do you want in your old age? You have a choice. You can have a good state pension, which won't change when your other income goes up and down, or a relationship with the Pension Service. Which would you prefer?'' Something tells me that Britain's pensioners are not crying out for a relationship with the Pension Service, and that that is second best to a decent pension—

Peter Atkinson: Order. That is an interesting point, but it has little to do with clause 6.
Annabelle Ewing rose—

Ian McCartney: I shall address the points raised by the hon. Member for Northavon first and then I shall give way to the hon. Member for Perth (Annabelle Ewing), but I thank her for the note that she sent me at the weekend.
 The hon. Gentleman is no longer drowning; he has drowned. Pensioners will not only have a relationship with the Pension Service, they will get a decent pension. More importantly, the basic state pension is a building block, and there are additional above-average increases. We are dealing with the problem that pensioners lose out for every pound of their small additional earnings or small second pension. We have changed the nature of the game. We will make a contribution—a payment to reward thrift. Hon. Members may inform me otherwise, but I know of no other state pension system in the world that has ever done such a thing. It is a dramatic change in terms of both structure and policy. 
 The hon. Member for Northavon mentioned the alternative. At some stage in the proceedings, we must put on record what the alternative would mean, because it is full of means-testing and poorer pensioners would lose out considerably—but we will return to that later, because I have information that is hot off the press; I have just received another note. The hon. Gentleman needs help with his policy because it is in disarray.

Annabelle Ewing: Taking the European Union as a comparator, I wonder how the United Kingdom fares in terms of the level of basic pension rights—although that may be beyond the scope of the clause. The Minister mentioned the annual statements to pensioners in receipt of pension credit and said that they would be able to see at first hand if they were not receiving their full entitlement. What type of information will be provided in the statement to enable pensioners to look at the statement and know if they are not receiving the amount to which they are entitled? Will it simply be a case of, ''Please contact the office if you have any questions''? They may fear that if they contacted the Pension Service, they might end up with less money.

Ian McCartney: The hon. Lady makes a good point. I can assure her that when we design all the materials that the Pension Service will send out, we will sit down with pensioner groups from the beginning and agree the design, content and language. We have a group that already does that, and because of many of the changes that have already taken place, the materials that we have produced are quantifiably better than in the past—irrespective of the party in Government; this is not a partisan point. That has happened because we have put a new system in place.
 I would be happy to write to the hon. Lady and the rest of the Committee, but the process is simple. The statement will set out the entitlement, the guarantee and the credit, how the figures have been established, what payment arrangements are in place, and what the bottom line is. It will also include clear points of information about the simple easy way to gain access to the new Pension Service. 
 Any materials produced by the Pension Service, for whatever reason, must be compatible with older people's organisations and language. It is also important to remember people whose first language is not English, and those who have disabilities such as visual impairment, and to produce materials that are accordingly sensitive. They must not lose out or receive a service that is any less first class than those without disabilities receive. The hon. Lady's point is well made and will be taken into account when we produce materials for the Pension Service that will help pensioners with their relationship with the Department. I hope that now that I have made those remarks, we can agree to the clause. 
 I shall make one final point, so that later we can have some continuity with the comments of the hon. Member for Northavon. Under his proposals on state pensions, 80 per cent. of pensioners will still qualify for the minimum income guarantee through a means test. I look forward to further discussion on that subject, and I ask hon. Members to support clause 6. 
 Question put and agreed to. 
 Clause 6 ordered to stand part of the Bill.

Clause 7 - Fixing of claimant's retirement provision

James Clappison: I beg to move amendment No. 29, in page 5, line 15, leave out 'except in prescribed circumstances'.

Peter Atkinson: With this it will be convenient to take amendment No. 28, in page 5, line 17, leave out paragraph (b).
 We have had a wide-ranging debate, which is not unreasonable as clause 6 is the first of five related clauses. However, from now on I shall be eagle-eyed, and I shall be grateful if the Committee keeps closely to the amendments that we are debating.

James Clappison: At the risk of having my words picked up and swept away under your eagle eye, Mr. Atkinson, I shall say that I think I can manage to stay in order in talking to amendment No. 29. It is a simple probing amendment concerning the technicalities of clause 7, which according to the explanatory notes establishes that
''Specifying an assessed income period has the effect of fixing, for that period, what is to be treated as an element of the claimant's retirement provision''.
 That is important when it comes to determining how much the pension credit is going to be. 
 Subsection (4) creates a mechanism for making adjustments to the amount of retirement provision. The explanatory notes say: 
''The intention is that the regulations will provide for the amount of income from a pension or annuity to be deemed to increase from time to time in line with the terms of a claimant's pension or annuity arrangements and for the rate of return on capital to be treated as adjusted from time to time. In some cases, the assessed amount may be deemed to stay the same.''
 The subsection provides that the assessed period should be deemed to change in that way ''except in prescribed circumstances''. We would simply like to know what those prescribed circumstances might be, and when the amount would not be adjusted in line with changes in pensions and annuities, as the explanatory memorandum is silent on that point. The purpose of the amendment is to deem which prescribed circumstances would be an exception to that rule. 
 Amendment No. 28 concerns subsection (4)(b), which provides that the assessed amount of income from capital may be increased or decreased by regulation. We would like to know a little more about how return on capital is to be so adjusted, particularly in the light of earlier remarks. It would be helpful to have an extra explanation of that.

Steve Webb: Subsection (4) deals with the way in which someone who makes a claim for pension credit will have imputations made about their income from capital for up to five years, which is the period between making claims. The innocent-looking subsection to which the amendments relate has the potential to be the administrative nightmare of the pension credit. I am grateful to the hon. Member for Hertsmere for tabling amendments on subsection (4), as they will give us the opportunity to hear from the Minister how the
 process to which the probing amendments relate will work.
 An individual might report an occupational pension at the start of the five-year period. The subsection says that the Government may make an assumption about what happens to income from that pension in the next five years. The assumption might be that it should rise in line with inflation. There would then be a recalculation each year, because there would have to be an annual recalculation of the pension credit anyway, as all the rates will change. The recalculation will be made on the basis of a guess as to what that occupational pension will have risen to one year on, two years on, and so on. 
 As soon as one says that, one realises the problem. People may have pension income from a multiplicity of sources. They will have worked for more than one employer, and may have annuity income and all sorts of private savings income. As I understand it, subsection (4) allows the Secretary of State to deem an increase for every one of those sources of income, according to the rules of the pension scheme. When people apply for the credit, in this unintrusive, bureaucracy-light or bureaucracy-free way, will they have to state the name and address of the pension provider of each pension that they receive? Will they have to stipulate the indexation rules for each pension of which they are in receipt—

Julian Brazier: Some of them are discretionary.

Steve Webb: Some of which are discretionary, as the hon. Gentleman says. If not, will that be a regulatory burden on the pension provider? In other words, will everyone who pays a pension to a recipient of pension credit have to tell the Department for Work and Pensions the uprating rules for each pension paid, which will differ?
 Will the system be based on an individual-specific assumption about indexation—the ''deeming'' in subsection (4)—for each pension that each claimant receives, and who will provide that information? If so, that will involve an enormous administrative cost. If not, will people be deemed, using a broad-brush approach, to, for example, have added price indexation when many of them will not have done? Although over one year at 2.5 per cent. inflation that might not worry us too much, over five years at 4 per cent. inflation, for example, it could worry us considerably. Either a guess will be made that could be badly wrong and lead to people seriously missing out, or a specific and individualised calculation will have to be made for each pension and recipient, which will mean a huge administrative and regulatory burden. Either of those avenues would worry me. I hope that, when he responds, the Minister will make it clear exactly how the process of deeming will work.

Ian McCartney: I shall first answer some questions. We intend to use the power for pensioners who enter retirement homes, when their capital disregard increases from £6,000 to £10,000. That will be significantly beneficial.
 I take the hon. Gentleman's point that the proposals seem bureaucratic. As we said earlier, making pensions simpler can be complex in the back 
 room, but the complexities lie with the Pension Service, not the pensioner. He asks the legitimate question, will this be a bureaucratic nightmare for older people? The answer is no. Each stage in the assessment will include safeguards, some of which will be automatic. If the assessment is wrong, pensioners themselves can intervene and tell us, and a relationship will develop between the older person and the Pension Service. 
 Clause 7 is part of the family of clauses 6 to 10 and is designed to help pensioners in their relationship with the Department. Subsection (4) ensures that foreseeable and regular changes in retirement provision are taken into account during an assessed income period. The words ''foreseeable and regular'' are important. The one thing on which we agreed in the previous debate was that the income of the vast majority of pensioners is stable, as are, generally, the sources of that income. That does not constitute a huge burden, as part of the claims process is establishing the rate and timing of second pension increases, using information from either the pensioner or, with permission, the provider. Only if we cannot establish the actual rate will we deem the rate to be that of the September retail prices index. Again, that is part of a process that takes place now. Every September, an RPI rate is deemed that everyone knows and understands, and we are using that. 
 The provision is intended to allow for annual increases in second pensions and annuities and to allow us to give effect to a change in the rate of return on capital or the amount of capital disregarded within an assessed income period, which will be done automatically.

Julian Brazier: Will the Minister give way?

Ian McCartney: It is important to get our head around this. I shall give way later to the hon. Gentleman, who usually makes a point that is worthy of a response.
 Pensioners may at any time provide the actual rate. That is important, and that answers one of the points that the hon. Member for Northavon legitimately makes. We do not have a system that is designed to simplify for the back office but gives problems for pensioners. It is designed in the opposite way—to ensure that the back office deals with the technicalities and responds to pensioners and that pensioners believe that if an assessment is wrong, they can intervene directly and have the matter resolved in their favour. 
 Minimum income guarantee claimants must give details of pensions that they receive now. It is better to ask at the claim point how their pension goes up than to ask every year. That is part of the process in developing a rolling programme for pension credit. 
 Having dealt with those who are currently in the system and moving automatically to the new system, the relationship will be different for those who come later. It will not be the old-style relationship but one from the point of their application for pension credit. The simple but effective questions that need to be answered in order to assess them for pension credit will 
 be asked at that point, rather than year after year. It is important to make that distinction. The hon. Member for Northavon is right. If it were the old-style way of dealing with matters, it would not work. It would be bureaucratic and ineffective. 
 We are also allowing for non-standard ways of increasing pensions. Each year, we shall tell pensioners what figures we are using. That is, again, important. Pensioners will have a clear knowledge of the transparent relationship. Transparency is important in the relationship with pensioners. The system will be proactive on behalf of pensioners and sensitive enough to take into account changes in their income that necessitate our increasing their income. That is how we have designed the relationship. 
 From 2003, the assumed rate of return on capital will be £1 for every £500 above £6,000. We intend that that will be reviewed annually as part of the normal uprating process, as hon. Members will understand.

Julian Brazier: Perhaps the Minister will deal with a particular example. If the amendments are not agreed to, how will the system deal with the case of a pensioner, one of whose sources of income is an occupational pension from a pension fund that has discretion? To add a further dimension, let us suppose that the discretion of the trustees for many years has been to index in line with inflation, but that the pension fund is now experiencing financial difficulties, and it looks as though for the next two or three years they may not be able to afford to do that. How would such a case be treated under the rules?

Ian McCartney: If I get this wrong, I apologise, but I understand the situation to be as follows. It is best to take an example. The last figures from a survey on the impact of RPI on pension provision are from 1995. Those figures suggest that 82 per cent. of private pensions that year had a rate of increase of about 2.4 per cent. The RPI at the time was 3.5 per cent. Therefore, the vast majority of pension increases are in the ball park of the average RPI.
 Secondly, as I said earlier, if an older person receives from us a notification that the percentage is, let us say, 3.5 per cent., and there has been no increase, the constituent may intervene and notify us that the increase is nil, and the calculation would be based on a nil increase. The system works in favour of pensioners. They will not be lumbered with a 3.5 per cent. increase if their increase is nil. We shall notify them of the assumed figure that we are using. If they respond and say that they receive no increase, that will be taken account of in that way. I hope that that answers the hon. Gentleman's question, but if not, it is not a resigning issue. 
 Amendment No. 28 would remove our ability to give effect to a change in the rate of return on capital or the amount disregarded as part of that process within an assessed income period. It would remove flexibility and tie the hands of future Governments, preventing them from ensuring that the rate of return on capital was applied equally, whether or not an assessed income period was in place. One pound in £500 strikes a fair balance between the treatment of capital and pensions. The Bill therefore provides the 
 flexibility to alter the treatment of capital within an assessed income period, should it become necessary to do so. 
 We know that, in most cases, second pensions and annuities will be liable to be increased annually. We therefore propose to take powers to deem the amount of that increase. That will avoid the need for pensioners to report such changes every year, thereby reducing the level of intrusion into their private affairs. We also know that most private pensions keep pace with inflation. If a pensioner is unable to provide information about the rate at which their second pension increases, we shall assume that it is uprated at least in line with prices. 
 However, in some cases retirement income will not increase. A significant minority of pensioners may have chosen a fixed annuity, for example, or been forced to do so under a defined benefit scheme. We do not want to assume that there would be automatic increases in income in such cases, which answers the point made by the hon. Member for Northavon. Amendment No. 29, however, proposes that we make such assumptions, although I accept that it was intended to elicit from me what I hope are the right answers to hon. Members' questions. If we assume that pensioners are experiencing increases in income, but they do not actually receive any, we will disadvantage them and their entitlement to pension credit will be reduced. Of course, pensioners will be able to ask for their pension credit to be reassessed at any time, but we do not want to pay out the wrong amount to this group of customers and to rely on them to tell us so that we can correct the problem later. That is, however, the effect of amendment No. 29. The hon. Member for Hertsmere seems to be setting the Pension Service up to get payments wrong. As it stands, the Bill enables us to get them right from the outset and to correct them quickly if we do not.

James Clappison: I am listening carefully to the Minister's helpful explanation, but perhaps I can save him a little time. These are probing amendments, and he need not spend too long knocking them down. I want, however, to draw him out a little further on a point that runs throughout his speech. He said that the Government would tell pensioners about any technical changes, but will he say a little about how they will do that?

Ian McCartney: As soon as we get permission from the House to enact the Bill, we shall have the opportunity to press ahead through the new Pension Service with a range of arrangements and a timetable. When work on those is completed, my right hon. Friend the Secretary of State or I will write to the hon. Gentleman and other members of the Committee to clarify what processes will be put in place to carry out the pre-work on notification. We will also discuss who will be notified first and what arrangements will be put in place to do that.
 We also intend to provide Members of Parliament and their staff with a briefing pack, and it is important that we do so. I have no doubt that their advice centres and offices will receive inquiries in the course of their 
 daily work, and we want to ensure that we take the strain off them. Hon. Members can rest assured that user-friendly materials will be available to cover the whole programme. It will be a big logistical operation to transfer more than 2 million people on to pension credit immediately and another 4 million within a year. That is a big exercise in anyone's language, and we are undertaking a great deal of work on planning and logistics. 
 In the past few days, we have published the Pension Service business plan for 2002–03—I hope that the hon. Gentleman has received a copy—which sets out many of the priorities in relation to pension credit. I shall write to hon. Members about the implementation process at the earliest opportunity, but I am not allowed to do so until the Bill has been enacted. At that point, we shall move forward quickly. 
 With those remarks, I hope that the hon. Gentleman will withdraw the amendment.

Steve Webb: I want to take up a couple of points that arose from the Minister's response. As I understand it, the first assumption is that the applicant will be asked to say what the indexation rules are. The Minister is nodding, which is helpful. On the form, which will be cut down from 40 to 10 pages and will be very simple, one question will be: ''Please set out the indexation rules''—it will probably be put in simpler language—''that apply to each of your pensions.'' Given the breathtaking ignorance of many people about pensions, I wonder about that question. People come to the end of a private personal pension and do not realise that they can buy the annuity from anyone, not just the provider. They end up with less income for the rest of their life because of that. That is a fundamental aspect of pensions, which people do not understand.
 The fact that people will receive this form and be asked for such complex information concerns me. Assuming that many of them cannot provide it, the Minister seems to be saying that the provider will have to do so, potentially for millions of pensioners. I confess that I have not studied the regulatory impact assessment for the Bill very closely, but will the Minister say whether it deals with that point and whether an extra administrative burden on providers is expected? Two other points are germane. First, there is take-up, for which the Minister says that there is a safety net. If things go wrong, pensioners will receive a letter telling them the assumptions that have been used. If those assumptions are wrong, the pensioners will inform the Pension Service. However, my fear is that because the matter is so complicated people will either file the letter in a shoebox or not understand it and will therefore miss out because they have not spotted that an incorrect assumption has been made. 
 The final aspect of the matter is limited price indexation. The Minister cites the case dating from when inflation was 3.5 per cent. and pension schemes typically increased by 2.5 per cent. It is all straightforward when inflation is low, but the Bill has to work in a high-inflation environment as well. Once inflation has risen above the limited price indexation covered by most schemes, there will be huge variations in the amount of indexation that will be ''deemed'' under subsection (4). That could cause 
 real problems of non take-up. If the RPI is wide of the mark in a high-inflation environment, what pensioners actually get will vary enormously. Those are big unresolved issues.

Ian McCartney: The majority of pensioners will be guided through the claims process by Pension Service staff over the phone. A large proportion will not fill in a form themselves—they will simply be asked to indicate that the information provided is correct. It will be a change not just in emphasis but in the whole way in which the system works. The job of the Pension Service is to be the advocate on behalf of pensioners, not the gatekeeper on behalf of the state. That is a fundamental change and that is why the service's new staff are being trained in a fundamentally different way.
 Some of the hon. Gentleman's points were very legitimately put. One gets nightmares when trying to design such a system. I can only ask the hon. Gentleman to trust me that his points are being taken into account. As regards the regulatory impact of the measures, we are preparing the regulations now. I think that I gave a commitment in a previous sitting—if I did not, I am giving it now—that as soon as we can get the regulatory regimes in place and the Bill is enacted, Opposition spokespersons will have the opportunity to meet officials and go through it with them so that they can have some input. The important thing is to get the regulations right. The Bill itself is easy, but the regulatory regime is another job altogether. I give the hon. Member for Northavon that assurance. 
 A passage from the explanatory notes relating to the regulatory appraisal has been handed to me. It states: 
''There may be an increase in the volume of queries made to the financial services industry at the initial claim stage as the objective is to reach more customers than the numbers currently receiving the Minimum Income Guarantee . . . However, this will be counterbalanced by fewer queries in the medium and long term as a result of plans to introduce a less intrusive income assessment and indefinite awards with five-year reviews.''
 Those are excellent words, but they do not answer the hon. Gentleman's question about how much the measures will cost. The notes do not tell me, so I assume that the assessment is that there will not be a huge burden, because if such a burden were predicted, it would have to appear in the notes. Just in case there is an error, I will check for the hon. Gentleman and write to him. I hope that that answers the hon. Gentleman's queries and that we can now move on to another clause.

James Clappison: I was reading The Guardian the other day. It described the pension credit as ''a complex beast''. When or if the author of those comments studies the debate, what has been said will not dissuade him from that conclusion.
 I listened carefully to the Minister's remarks. The debate has been useful and I look forward to receiving the letter from him. These were only probing amendments and, as they have served their purpose, I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

James Clappison: I beg to move amendment No. 30, in page 5, line 28, at end insert—
'(d) any other relevant income to be taken into account in the determination of pension credit'.
 The amendment relates to clause 7 (6), which contains the definition of ''retirement provision'' and the types of income that are to be the subject of the process described in the clause. The amendment simply asks whether any other types of income should be subject to the process.

Ian McCartney: I have a reasonably substantive response for the hon. Gentleman, at the end of which I hope that he will again say that I have been helpful.
 I appreciate that the amendment is simply a probing amendment. If it were included in the Bill, it would leave a hole of at least £500 million in the Chancellor's budget. The Liberals will probably pick that and add it to the 1p. 
 I shall explain the objectives of the clause. As we said in response to previous amendments, the purpose of the assessed income period is to replace the weekly means test. That means that for most pensioners the requirement to report changes in their circumstances is extended from the immediate to every 5 years. That may be like a red rag to a bull to the hon. Gentleman, but I keep repeating the same point to emphasise how fundamental is the change in the measures under clauses 6 to 10. The clause provides the structure that enables us to make that change. 
 I shall go back a step. Most pensioners' incomes are stable when all the provisions that they have made for their retirement are settled. Obviously, some of their income streams will change—occupational pensions, for instance, will probably be protected from inflation. Capital could change as well, as pensioners utilise their capital or receive windfalls from a family will, for example. Some pensioners will need to draw legitimately on savings from time to time and some may receive money through inheritance. By and large, however, their main sources of income will not change to any extent. The clause essentially takes advantage of that fact and fixes in time these income streams. 
 The main sources of income that will be fixed are described in clause 7(6). They include retirement pension income, as specified in Clause 16, which includes any non-state second pensions, such as occupational pensions, stakeholder pensions and other private pensions, but excludes state benefits and pension income from non-pension annuity contracts and the income that we shall assume from capital. 
 Pensioners do not have to tell us about increases in these incomes. Let us be clear about this: if a pensioner wins the lottery in the second week of his or her assessed income period, the increase in capital, be it £10 or £1 million, will not be reflected in the pension credit entitlement until the end of the assessed income period—in four years and 50 weeks' time. 
 Only those who believe that the pension credit is some benefit of last resort have any reason for alarm, 
 but it is not the case. The pension credit is an entitlement that combines a decent guarantee with a savings reward, and is far removed from the world of income support. The new system is very different from the old system, under which pensioners would have to report even the aforementioned penny. In fact, the sum involved would be only a tenner, but hon. Members will understand my point. Under the old system, any increase in income had to be reported and would be lost in adjustment, so the new measure represents a dramatic change in practice. 
 The amendment would allow all state pensions and benefits to be fixed for the duration of the assessed income period, but it would go further: it would allow all income received in a pensioner's household, from whatever source, to be fixed. Thus, during the assessed income period, no account would be taken of new benefits received by the claimant or his partner. In pension credit, as in other income-related benefits, most other benefits are taken into account as income. If the claimant's younger partner started to receive incapacity benefit, it would not be set off against pension credit until the end of the assessed income period. That would amount to double provision and is therefore not acceptable. Secondly, no account would be taken of increases in earnings, so if a younger partner got a highly paid job, that, too, would be unacceptable. 
 I feel sure that the Committee would agree that there is a difference between the income sources that we intend to fix and those where we will still require changes to occur when they happen. I trust the balance that we have made in clause 7 and I hope, after that explanation—

Steve Webb: The Minister helpfully referred us to the definition in clause 7(6)(a) which, as he has just said, says that retirement pension income is defined in clause 16. In the long list on page 10, clause 16(1)(h) says:
''Income from a retirement annuity contract'',
 so retirement pension income under subsection (6)(a) includes income from a retirement annuity contract. However, subsection (6)(b) says: 
''Income from annuity contracts (other than retirement pension income)''.
 Can the Minister clarify the distinction? It is not clear to me why retirement annuity contracts are counted in subsection (6)(a) and annuity contracts are separately listed in subsection (6)(b) and the amendment refers to inserting additional categories.

Ian McCartney: I am just as hazy as the hon. Gentleman, so we shall keep waffling until we get an answer. That illustrates the importance of Committees—it is impossible to know every answer under the sun.

James Clappison: Will the right hon. Gentleman give way?

Ian McCartney: I know that the hon. Gentleman is trying to help me. If he is going to embarrass me, he had better make it worth while.
 The answer might be that it is to take account of the different types of annuity. Some annuities have fixed interest returns and some have non-fixed returns. Some relate to a small payment on death that comes from some of the capital. I hope that I am in the right ball park, because if I am not, it is a really big embarrassment.

James Clappison: To reiterate my earlier point, does the Minister agree that it is important, without alarming pensioners, to give them the fullest possible information?

Ian McCartney: The hon. Gentleman is absolutely right. Maybe we should start with Ministers. I hope that we can, at some stage, have a good discussion about the relationship of the Pension Service to the issues raised by the hon. Member for Northavon and others. That is increasingly seen as a critical factor in the successful outcome and implementation of pension credit. We have between now and October 2003—which is not a great deal of time, given the task before us.
 I think that I have offered, but I cannot remember whether it was during this debate, to arrange for any Opposition spokesperson who wants to visit our emerging pension centres to do so. They will be open visits, with no restrictions, and we hope that they will return and tell us what can be done to improve the centres. [Interruption.] Ah, God is on our side. I shall read this for the record. 
''Retirement pension annuity—required to purchase before age 75 if a member of a defined benefit scheme. Non-pension annuity—for example home equity release.''
 Clause 15 lists all categories of income including pension income. Pension income is given a more detailed definition in clause 16. I hope that that answer helps the hon. Gentleman. It has helped me, in that the provision does what I thought it would by differentiating the various incomes that come from annuities. If the hon. Gentleman reads the answer and is still not satisfied—if he thinks that I am still talking gobbledygook—I shall offer a fuller and more detailed explanation. I thank the hon. Gentleman for that googly; I hope that it is the last in this Committee.

James Clappison: It has been a useful debate. I emphasise that it was a probing amendment. I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn.

James Clappison: I beg to move amendment No. 35, in page 5, line 38, at end insert
'or of any decision where it seems to the decision-maker that the claimant has acted either fraudulently or without the utmost good faith in making the claim'.
 The amendment would allow decisions on entitlement to credit or retirement provision to be changed if claimants had acted fraudulently or without the utmost good faith when making their claims. We shall come to the general question of fraud later, in a new clause. The amendment is designed to explore how decisions on income received, and the effect that that will have through the pension credit, could be revised in the circumstances outlined. We imagine that there is some mechanism whereby a decision can be revised if the applicant has behaved fraudulently, and 
 we look to the Minister to say a few words on the subject. It might also be worth exploring whether decisions should be revised if the applicant may not have acted fraudulently but did not act with the utmost good faith.

Ian McCartney: Over the years, pensioners have put off claiming the help that they are entitled to because of the nature of the claims process. Claiming is sometimes seen as stigmatising. We do not want to debate that today, but clause 7 tries to deal in a practical way with those issues, which are real to older people, but to take account of them when developing a system that meets the taxpayer's need for the decision-making process to be secure.
 I realise that it is a probing amendment, but I do not want those taking part in this debate—even if only the hon. Gentleman and I are in the firing line—to think that we are accusing pensioners of fraud. Indeed, fraud among older people is comparatively rare. For example, for the 12 months to March 2001, only 3.2 per cent. of MIG cases were found to be engaged in fraud compared with 8.9 per cent. of income-based jobseeker's allowance cases. 
 The principal types of fraud are incorrect declarations of capital and savings by claimants, and the new system will significantly reduce that error rate. Claimants will continue to receive benefits while living abroad or when on extended leave from the United Kingdom that has not been reported. Another fraud is incorrect declarations of benefit received and other sources of income, including occupational pensions. We are developing a strategy for measuring losses for fraud and error. Pension credit is a brand new benefit and it means that we can scrap the weekly means test. It is important to ensure that our strategy for measuring underlying losses for fraud and error is robust. 
 None of us is interpreting the hon. Gentleman's intention in moving the amendment as anything other than honourable towards older people. He is attempting, rightly, to discover whether we have put effective arrangements in place to deal with it. Subsection 8 already provides the powers that he refers to in the amendment. The amendment, is therefore, redundant. 
 Committee members will no doubt appreciate an explanation of why we seek those powers. It is a bit like following a string through a labyrinth, but here we go. We will have powers to revise pension credit decisions that have been based on a mistake or ignorance as to a material fact, including those that have arisen through fraud or misrepresentation. Those powers derive from section 9 of the Social Security Act 1998. 
 Pension credit is included in the provisions of the 1998 Act by virtue of the consequential amendments contained in part 2 of schedule 1 of the Bill. In turn, overpayments that arise through fraud or misrepresentation are recoverable under section 71 of the Social Security Administration Act 1992. Pension credit is included in that provision by paragraph 10 of schedule 2 of the Bill. Happily, very few pensioners 
 seek to defraud the taxpayer or obtain an overpayment deliberately. However, we recognise that, especially with the existing regime, the continuous requirement to report changes can cause pensioners to be overpaid inadvertently. Indeed, for that reason, some pensioners are put off claiming the MIG. We do not wish to brand decent, well-intentioned pensioners as fraudsters, and another major positive effect of the assessed income period will be that changes in income will no longer have to be reported. Where cases of fraud or misrepresentation do occur, I hope that I have satisfied the hon. Gentleman that the Bill already provides for the powers that he seeks in his amendment, which I ask him to withdraw.

James Clappison: I am grateful to the Minister for his explanation. We have drawn out, first, that the powers exist to revise such decisions and, secondly, where those powers lie. For those of us who do not have section 71 of the Social Security Administration Act 1992 at our fingertips, the Minister's response is helpful.
 I appreciate the context in which the Minister has set the debate. I agree with him if he is saying that a balance needs to be struck in these matters, and that one should not introduce unwarranted measures that may alarm pensioners or put them off claiming. Pensioners understand as well as anyone what fraud means, and the amendment is designed to bear down on fraud. Fraud requires a dishonest intention to defraud, and I am sure that pensioners feel as strongly as everyone else feels about those who fraudulently divert the money of honest taxpayers into their own pockets. 
 We shall have a wider debate later about tackling fraud. I agree with the Minister that benefit fraud is less prevalent among older people, but it does exist. However, having drawn out from the Minister which part of the Bill contains the power to which he refers—clause 7(8), although the power is not spelt out in the clause—I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn. 
 Clause 7 ordered to stand part of the Bill.

Clause 8 - Fresh determinations increasing

James Clappison: I beg to move amendment No. 31, in page 5, line 43, after 'any', insert 'reasonable'.
 Claimants may request a reassessment where circumstances have led to a reduction in income and, therefore, a potentially higher award of pension credit. Committee members will become familiar with this point during the morning. Where that happens, a determination is made regarding the elements or the amount of any of the elements of the retirement pension, which may have an effect on the pension credit. 
 The purpose of the amendment might seem to be to limit the opportunity for claimants to seek a reassessment and possibly an increase. However, I can tell the Committee that it is intended to ascertain, 
 in particular, whether claimants could seek a reassessment at any time during the five-year period. It is also designed to probe whether it will be possible for claimants to seek further determinations if an application should fail—that is, if it does not result in an increase in pension credit—and it would be interesting to know how many times a claimant may seek a determination in an assessed income period of five years. It would be useful if the Minister could say something about that, and tell the Committee how subsection (2) fits in with subsection (1), if subsection (2) is to deal with the situation where some elements are redetermined downwards and others upwards. The wording of subsection (2) is not as transparent as it might be.

Ian McCartney: I hope that I can clarify this quickly for the hon. Gentleman, because clause 8 is designed to protect pensioners. It ensures that, whatever the changes in their income, pensioners have a right to a fresh determination of entitlement if that will result in their being awarded more credit. We have already discussed our objectives in introducing the assessed income period in the debates on clauses 6 and 7. It is designed to enable the abolition of the weekly means test, to put an end to intrusion and to introduce simplicity and transparency. It is fixed for five years and is available from the age of 65, when most pensioners' income has stabilised.
 We want pensioners to benefit from the assessed income period. I accept in good grace that this is a probing amendment that is designed to find out whether the assessments are to be done for a reasonable purpose. Our intentions are plain and simple. Some pensioners may see drops in their income over the five years of the assessed income period, for example, if they choose to spend some of their savings. We do not want them to lose out and have to wait up to five years to have their entitlement reassessed. That could cause hardship or mean that they are living below the level of the guarantee, which would defeat the whole object of the measures. We want to take account of change when it happens, but only where it is to their advantage. Obviously, we need to look at their retirement provision to check their entitlement and take account of any changes to other income in the normal way. 
 If a pensioner's income has gone down, we will not wait until the end of the assessed income period to increase their pension credit entitlement; it will be increased immediately. If it turns out that their income has increased rather than decreased, they will keep the benefit of the increase for the remainder of the assessed income period. I was trying to make that point earlier—it is vital. It is important for pensioners not to be put off by the assessment. 
 There are no disadvantages to this system, only advantages—it is a virtuous circle. Giving pensioners all the advantages of a fixed income assessment without any of the disadvantages is a major change when it comes to benefits.

Steve Webb: I think I agree with the Minister that the clause is to the benefit of pensioners. Will he clarify whether, when pension income from one source has gone down and pension credit could go up, all the other sources of income will be examined to see whether they have gone down or up? If any of them have gone up, will that be offset against the increase in credit? If one pension benefit has gone down by £10 but another has gone up by £5, will the assessment ignore the increase of £5 or will the person's net income be judged to have gone down by only £5? Will such variations be in completely separate boxes, or is there the possibility of a partial offset from an increase in income? I am slightly hazy on that.

Ian McCartney: I am not clear what subsection the hon. Gentleman is referring to. Subsection (2) takes what the hon. Gentleman said into account, because in the event of the pensioner receiving income additional to their original assessed income, they maintain the level of pension credit based on the original assessment for the period of that assessment. However the calculation is made, there will not be a net loss, whether things are put in separate boxes or not, during that assessment period. It could affect the next assessment, but for the period of the original assessment the pensioner will not suffer from any clawback or penalty. However the calculation is made, there will be no penalty of the sort that the hon. Gentleman described—I do not think that he is trying to trip us up.
 When I explained to the hon. Gentleman why the new system was a virtuous circle, I was trying to show that, for the period of the original assessment, the sum payable under that assessment could not be affected other than by a loss of income, which could lead to its being increased. Wherever we cut the cake, the pensioner does not lose out. Clause 8(2)(b) gives power to make fresh determinations considering the net effect of change—I think that that is the hon. Gentleman's angle. It looks at the net effect of the change. If he is not sure about that, I shall write him a note. 
 I hope that, given my explanation, the hon. Member for Hertsmere will withdraw his amendment.

James Clappison: The hon. Member for Northavon made his point about the operation of subsection (2) far more eloquently than I did. The Minister's explanation of that subsection matches my understanding of it after reading the explanatory notes.

Steve Webb: My understanding of the Minister's reply is that the boxes are not completely separate. If something decreases by 10 and something else increases by 5, and the net effect is to make the person better off, the increase by 5 will matter and will mean that the improvement in pension credit is less than it would otherwise be.

James Clappison: It is worth exploring the question. When I read the notes, I thought that I had grasped the common-sense meaning of subsection (2).

Ian McCartney: No, that is exactly what I said to the hon. Member for Northavon. The net effect is important because that is the fundamental difference:
 under the current system, the effect would be deleterious and there would be a reduction in income, whereas under the new system, there will not be.
 The hon. Member for Hertsmere may say that the change has been made in an unhelpful way, but I disagree. His original understanding of the clause stands true: it creates a virtuous circle and, if a pensioner's income falls during the assessed period, he or she may receive an increase. If the income rises, on the other hand, he or she continues to receive the same level of income from the assessment. In both circumstances, the pensioner gains the advantage. That is the net effect. 
 I am trying not to recast what has been said but to catch the interpretations of both hon. Gentlemen.

James Clappison: That is helpful, and we can leave that point.
 On a smaller point, will it be possible for a claimant to make an application for a fresh assessment at any time—for example, if one of his sources of income falls unexpectedly very early in the five-year period? If a claimant has had a reassessment on that basis, could he make a further application for another reassessment if another source of income went down?

Ian McCartney: The answers to the hon. Gentleman's questions are ''yes'' and ''yes''.

James Clappison: That is helpful; I do not think that I can do better than that. As this is simply a probing amendment, I beg to ask leave to withdraw the amendment.
 Amendment, by leave, withdrawn. 
 Clause 8 ordered to stand part of the Bill.

Clause 9 - Duration of assessed income period

James Clappison: I beg to move amendment No. 32, in page 6, line 29, leave out subsection (2).
 We understand that the assessed income period will usually be five years, but the period could be shorter if it is considered that the claimant's income at the time of the claim and over the following 12 months is unlikely to be typical. Presumably, that covers cases in which there is reason to believe that the claimant's income will increase at some point beyond the 12 months. It would be useful to hear from the Minister on that point. Will he also tell us if he can add anything on the circumstances in which the assessed period will be set for less than five years? How will those considering the claim know that the claimant's income at the time of the claim and in the following 12 months is unlikely to be typical? That is an interesting question, and we would be grateful for any reflections that the Minister might have on that. Will he also tell us what happens if an assessed income period is not specified at all, which seems to be a possibility contemplated in the clause?

Steve Webb: The hon. Gentleman has highlighted an important question. I am not sure how often the powers in the clause are likely to be used. One can imagine a circumstance in which the initial claim for
 pension credit was made when someone reached state pension age—although I note that the assessed income periods do not start until five years before the claimant is 65—when one could perhaps know that one was going to retire, as opposed to draw state pension, within three months. In other words, it could be apparent that someone's circumstances were likely to change in the near future, so that to set a five-yearly award based on the situation at the time of the first claim would give rise to an almost immediate change. I notice that the clause raises yet another exception to the principle of people having contact with the authorities every five years. Throughout our debates, we are finding more and more exceptions to that principle.
 I hope that the Minister will give us some idea about the scope of the subsection that the amendment would withdraw, because if the power is to be used widely, we must ask whether there will really be five-yearly means testing or something quite different. 
 The other question in the back of my mind is: if the process of picking up changes is as straightforward as we have been told this morning—if people will receive an annual letter, and if fluctuations in earnings are not a problem because they will be reported—why do we need a separate bit of the Bill to deal with cases in which a five-yearly assessment is inappropriate because the situation is atypical? We have just discussed a raft of procedures for dealing with changes in circumstances, which are supposed to be simple and not onerous, so why do we need a separate regime for people whose circumstances, we are fairly sure, will change?

Julian Brazier: I congratulate my hon. Friend the Member for Hertsmere on the depth of his probing amendment. My point follows directly—for the second time this morning—from the question asked by the hon. Member for Northavon. In fact, it makes the point that I thought he was about to make. I do not understand why we need the subsection when changes in circumstances are addressed in so many other places.
 How will likely changes in circumstances during the first part of the five years be thrown up? Specifically—to revert to something that we discussed earlier, but which is also relevant here—does the Minister envisage the Department entering into correspondence with everyone's pension funds and their other sources of income when they first retire? Someone who has reached 65 may have one occupational pension from one source and a self-funded annuity from another part of his working life, because every year, circumstances become more complicated for the typical pensioner, as people's career patterns depart from the tradition of working in one industry all their lives. If the Minister does not envisage the Department writing to all a pensioner's main income sources when he retires, why is there a separate provision in the Bill alongside all the existing measures designed to pick up substantial changes in income?

Ian McCartney: The Government have a strategy of encouraging all pensioners to take up their
 entitlement. Research has shown that pensioners are currently put off claiming their entitlement because of the intrusive nature of the MIG claims process, so in this clause we are taking steps to reduce the barriers. We have already reduced the MIG claim form from 40 to 10 pages. In devising pension credit, we are determined to make further significant improvements. We have therefore introduced the proposals for an assessed income period.
 I think that we have all accepted the introduction of the five-year period, and our debates on clauses 6, 7 and 8 have reflected that. We are confident that the changes will help pensioners who have settled and regular income that is not subject to frequent changes, and to do so in an unintrusive way. The assessed income period dramatically reduces the number of changes that a pensioner needs to report; it effectively removes the weekly means test that Opposition Members keep banging on about. [Interruption.] I am not saying that in a derogatory sense. I have been banging on about the five-year term. The assessed income period will take a significant step towards removing the reasons why pensioners do not claim their entitlements, thereby encouraging them to claim what is rightfully theirs and, in turn, helping to reduce pensioner poverty. 
 Clause 9 contains the provisions that govern the length of the assessed income period; indeed, it is at the heart of our proposals to abolish the weekly means test. For the vast majority of pensioners aged 65 and over, the assessed income period should last for five years. During that period, pensioners will not be required to report any increases in their retirement provision—that is, non-state retirement pensions, income from annuity contracts or income from capital. Under the MIG rules, however, pensioners must report any changes, however small, to the first two items and to capital over £6,000. With pension credit, pensioners will no longer have to endure the continuous requirement to report changes, or annual inquiries into their financial affairs. That is a radical step, which will make it easier for pensioners to claim their entitlement. 
 Amendment No. 32 seeks to remove subsection (2), and with it the Secretary of State's power to set an assessed income period of less than five years—or not to set one at all. It would mean that all pensioners over 65 would have a five-year assessed income period. However, we realise that some pensioners' retirement provisions may not be finalised when they claim pension credit, particularly if they do so as they approach pension age. Some may expect an endowment policy to mature; others may find that their occupational pensions have not been finalised. Some pensioners' incomes may always be subject to wide fluctuations—for instance, the erratic payment of foreign pensions. Some of us regularly receive letters from pensioners who worked for other Governments in the old empire days, or for other countries in the Commonwealth and elsewhere, about the erratic nature of their payments, and we have to be able to intervene in a positive way. 
 Subsection (2) provides that when consideration is given to setting an assessed income period, if the income is not likely to be typical of the next 12 months, a shorter assessed income period may be set. Indeed, one may not be set at all. That is all about assisting pensioners, and it works like this. As people near retirement, as part of the assessment for the basic state pension and for pension credit, they are asked specifically whether there will be any other significant item of income during the next 12 months. Gentleman A or woman B may say, ''I have an endowment policy coming up in the next three or four months.'' Surely it is reasonable to set the assessment period and then to reassess. However, it should be remembered that pensioners will be asked if their level of income is likely to remain the same for the next 12 months; if it remains the same, the assessment will commence from that point for five years. As in the previous debate—the virtuous circles debate—the net effect will remain the same, and they will not lose.

Steve Webb: In the circumstances that the Minister describes, will it be an offence not to report an anticipated major change in income? If I knew that I was going to receive an endowment payment in six months' time, I would rather not tell the Department and have an assessment made for five years, knowing that when it did happen I could then say that it could not affect my entitlement for five years. However, it is fraudulent to fail to report something that is known to be coming down the track. I realise that one cannot always know with certainty when one is going to draw down such moneys, and one may not have known at the time of the claim. Are we about to open that can of worms?

Ian McCartney: It is not a can of worms. On the previous amendment, we said that fraud among pensioners was extremely low and would remain so, and that pensioners themselves were committed to opposing fraud. If, with pension credit or anything else, someone deliberately and with absolute knowledge concealed a substantial income, theirs would be a fraudulent claim.

Julian Brazier: Future income?

Ian McCartney: No, we are not asking people to speculate about future income.

James Clappison: Will the Minister give way?

Ian McCartney: No. We are not asking pensioners to speculate about the next 12 months. For example, if, during the process of applying for basic pension credit for his state pension, someone states that he has an occupational pension that is not yet due, that is giving known facts, not speculation. It is not as though he were about to win the lottery but didn't know it. He will have received something from the Prudential, or wherever, stating a set date—those of us with endowment policies have all seen such statements—and will know. If it happens that the set date for the payment of the endowment is later than the date of the commencement of assessed income period, it is more than reasonable for that to be notified to the authorities.

James Clappison: There is the issue that has just been raised about fraud. Besides that, people, particularly
 older people, are conscious of the need to be honest and to give a full report. They are likely to be apprehensive when they are asked about things that might happen in the future, and they are uncertain as to exactly what they must report. They find it very off-putting.
Mr. Boswell rose—

Ian McCartney: The hon. Member for Daventry is so keen that he wants to intervene now—but I shall give him a chance to get his breath back.
 I can see the point being made, and for the purposes of the debate I shall take it as genuine. The procedure set out in the Bill concerning which income must be reported for assessment and which need not be is clear and limited. It seems reasonable. As they approach retirement, people have a good idea what their income is likely to be. The Pension Service bends over backwards to talk to them about it—it is a pensioner-centred service. It goes through the process meticulously with them, because if it does not, something might be missed that allows them additional income. It is a proactive process for gaining access to income, not a gateway to prevent people from having income. 
 The fears of the hon. Member for Hertsmere are groundless. The only person who would not want to give the information in such circumstances would be one who was trying to gain a fraudulent advantage, which would occur only in a minority of cases. We have to take account of that, but in the genuine cases—there are some—in which a pension is to be paid later, or endowment or other income will come on stream, people should report that. There will be a shorter assessment period subsequent to the payment, then the five-year period will kick in. 
 Individuals may receive a windfall for some reason. We have covered that possibility, and we know the rules. There is a clear distinction between a windfall gain and additional income gain, if that has not been part of the net changes in terms of the income assessment period. Where there is a narrow focus on a range of income that will impact on the outcome of the application for pension credit, there should be an obligation on people to report it.

Tim Boswell: I am deeply sorry that I had to miss the discussions this morning, and I will read the report of them. I shall just comment on the Minister's specific point about an endowment policy vesting on a certain day. I understand why he wants people to level with the Pension Service that that might happen. However, some kinds of asset are not formally under the pensioner's control because they are held in a fund or elsewhere, without an absolutely set vesting day. There might be an element of discretion on the part of the pensioner, and in such cases there is a potential difficulty. A pensioner who may choose from a number of dates, and who knows that that could be relevant to the pension credit assessment, might choose a date beyond the period. He might do it in good faith and be exculpable. However, the Minister must make sure that the regulations are clear about what would happen if the date were ambiguous. When
 would the asset be deemed to come under the pensioner's control?

Ian McCartney: I shall give a short resumé of this morning. I was 99 not out and was caught leg before wicket by the hon. Member for Northavon—that is the best way to explain it.
 The hon. Gentleman raised a simple point. The rules are quite clear. If pensioners know that they will receive additional income, from whatever source, and that that will have an impact on their application for pensioner credit, they have an obligation to inform the Department. Any ambiguity will be resolved because they and the Department will determine between them the date on which they will begin to receive the additional income. That date could fall outside the 12 months. For example, if they began to receive it in 12 months and one day's time and it represented a significant increase in income, the decision maker may have to take that into account in a positive way, given that we want people to be able to maximise their income. It may well be that there is no good reason to take date B rather than date A, but there will still be a requirement for the pensioner to notify at the point of application that they are to receive additional income.

Annabelle Ewing: Let us consider the mechanics of the measure. My experience as a lawyer dealing with financial institutions such as pensions companies is that it takes a lot of time to get information from them. What impact would that have on when the pensioner receives pension credit?

Ian McCartney: I accept that when lawyers get involved all sorts of delay can arise.
 The Pension Service has devised the application process for pension credit in such a way that at the time of the initial assessment, the key elements of what is required to meet it are in place. In ensuring that, the Pension Service will assess the pensioner. We have had this discussion in debates on other clauses. I understand the hon. Lady's point, but I do not see that there is a difficulty with respect to this clause. Irrespective of the paperwork from a particular insurance company, what is important is the fact that it is known that during the first 12 months of the assessment period a substantial sum will become available to the pensioner through either an endowment or the commencement of a works pension. It seems reasonable for it to be a requirement to notify at the point of application and for that to be taken into account in determining a shorter assessment period.

Julian Brazier: May I raise again the question of income from work? Let us take two similar scenarios. In one case, someone retires intentionally from an area in which he has a particular specialist skill. He has his assessment and just weeks later he is approached, to his total surprise, perhaps by one of his former employer's competitors, and offered some well-paid part-time work. He decides that after all he is bored with gardening, and accepts the offer.
 The second scenario is exactly the same, except that at the point at which the man fills in the assessment form, he knows that the approach from the competitor 
 is about to be made. What would happen in those two cases?

Ian McCartney: We are into individual cases here. If the man knows that the approach is going to be made and asks for it to be put off so that it does not affect his assessment—well, he should consult a lawyer before he does that. If the approach is made outside the assessment period, any earnings would have to be reported and taken into account, as they always must be. The money might take the form of a windfall payment and be disguised as something else, but it is unwise for people to try to be clever with a system and lead themselves into fraud. That is the important point: if a financial change is foreseeable during the 12-month period, they need to report that.
 Secondly, rather than take a snapshot of income we want to review it over a five-year period. I hope that that helps the hon. Member for Perth. That is an important change: any foreseeable change between the second and fifth years is ignored. Only the first year is relevant, which is more than reasonable. We have got the balance right by following that policy for the first 12 months, after which, in years two to five, the virtuous circle kicks in and pensioners receive the benefit without losing out. When a change takes place that is not a benefit, they gain access to additional income. I do not think that anyone could expect a Government to juggle those three balls without dropping them, when all the balls in the air are 100 per cent. to the benefit of the pensioners. That is a radical departure from previous arrangements.

Julian Brazier: I just want to make something absolutely clear about the answer that the Minister gave me on earnings and his answers to similar questions in earlier debates. If a pensioner is earning as a result of part-time work and, as is the nature of part-time work, his earnings fluctuate from week to week, will he have to have weekly assessment? Will he give me a yes or no answer to that question?

Ian McCartney: That is the same question that the hon. Gentleman asked me before. Some 2.5 per cent. will be affected by that fluctuation issue. I thought that I had answered that question quite reasonably but if he thinks that I have not done so when he reads Hansard, we can consider the matter again.
 Under clauses 6, 7 and 8, we have been clear about the fact that the reporting system links positively to the assessment system to the benefit of the pensioner. The clause alone gives some responsibility to the claimant to give an indication of foreseeable income. That is a reasonable balance to strike. If hon. Members can accept the clause on that basis, our debate may move forward to the next clause.

James Clappison: We have to beware of Ministers juggling balls in these circumstances. We shall have to read Hansard to see to what extent the Minister has succeeded in keeping his balls in the air at the same time.
 I detect some sensitivity in some quarters on the subject of means-testing, as I was not conscious of the fact that we had been banging on about the subject all 
 morning. The Government told us that the five-year period and the other features of the provision make that feature less of a burden and less intrusive for claimants. A lot of issues have arisen from today's amendments on which we shall want to reflect in due course. Further consideration may put those claims in a different context, and perhaps put a different complexion on them. The hon. Member for Northavon pointed out that further exceptions keep cropping up. 
 We shall consider the Minister's remarks further, but for today's purposes I beg to ask leave to withdraw the amendment. 
 Amendment, by leave, withdrawn.

Tim Boswell: I beg to move amendment No. 37, in page 7, line 4, at end add—
'(6) For the avoidance of doubt, and notwithstanding regulations made concerning absence from Great Britain under section 1(5), the assessed income period shall continue through any period of absence from Great Britain during that period.'.
 I am glad to be back in the Committee after an unmannerly interruption, although it is clear from the tenor of the exchanges that my hon. Friends have handled the Minister in a masterly way and that he has done his best to reply. 
 The amendment rehearses two previous debates. I was not expecting to have to move the amendment and I did so only because of the result of those two debates. It is an example of the kinds of difficulty in the Bill that concern us. 
 I shall remind the Committee of the two debates to which I refer. Under clause 1, we debated the jurisdiction and for how long the pension credit would be payable if someone went abroad for an extended holiday, for example. Last Thursday we debated the eligibility for continuing the assessment to pension credit by inference if it was more favourable than the current assessment for prisoners who were incarcerated at the time. 
 We could reopen the question of whether it is a suitable additional punishment for prisoners and whether pensioners should be able to go abroad for as long a holiday as they wish—good luck to them—but I do not seek to do that. I am trying to expose something implicit in the earlier debate. It seems to me that in framing regulations Ministers must have in mind two potentially different activities. They need to provide for a change of circumstance, and the making of a fresh assessment in certain specific circumstances. I am conscious that some of the debate this morning, in my absence, turned on that matter, but pensioners get married, they decide to leave the jurisdiction altogether and their income falls—and the Minister wants to help them. 
 Such changes in circumstances are all understandable. Except for the purposes of debate, I am not arguing that it is necessarily wrong to deal with discharged prisoners in that way. Nevertheless, Ministers need to equip themselves with the power to suspend the payment of the credit without amending the assessment itself. The Minister may say that it is already provided for—that is what I want to know—but it particularly inheres in the amendment. Some 
 pensioners may decide to have an extended holiday—they may spend the winter in Benidorm. However, if an assessment is made that is more favourable than that made on their current level of income and capital, as we teased out this morning, before they go abroad, they will have to come back with a completely fresh assessment. 
 That creates a material consideration. No member of the Committee would want pensioners to have to say to themselves—or fail to say, to their subsequent regret—''I went away, I told the Pension Service, I was away for two months, but when I came back they said that I could not have the same pension credit because the income had changed and I was entitled to a lesser amount, or nothing.'' There is the possibility of deterring innocent travellers from going outside the jurisdiction for more than four weeks, and there can also be a retrospective effect if someone gets caught out. What I am saying to the Minister through the amendment, with particular application to leaving the jurisdiction, although there may be other cases, is that we need to have a battery of proposals that pick up the change in circumstances leading to fresh determination route, but given that some people lose when they have a fresh determination we also need the power to suspend the payment without affecting the determination of assessed income. If I have overlooked a way of doing that, I shall accept the Minister's assurances, but it is of particular relevance if pensioners decide, in all innocence, to take an 
 extended holiday, because no one wants them to lose out in the process.

Ian McCartney: I was interested to hear the hon. Gentleman say that the amendment harks back to a previous discussion on prisoners. During proceedings on the Proceeds of Crime Bill, he made a great fist of ensuring that people detained at Her Majesty's pleasure were able to get pension credit while they were there, and as a sign of not having double jeopardy, all was forgiven when they came out. It was the Ronnie Biggs amendment. One can go to Brazil for 35 years and then come back for one's pension credit. I know that that is not what was intended—

Julian Brazier: You took him back.

Ian McCartney: Indeed, that may well be why he came back. It was approximately at the time when the Chancellor made the announcement that Mr. Biggs got on that plane. Perhaps Ronnie Biggs's view of the clause is similar to that of the hon. Member for Daventry. However, I shall not go too far down that road.
 The amendment would— 
 It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
 Adjourned till this day at half-past Four o'clock.